The announcement earlier this year that Rackspace would stop offering commodity IaaS cloud services represents something of a return to the company's roots, according to global CTO John Engates.

"We're not getting out of the cloud — we still have a very vibrant infrastructure-as-a-service product — it's just that we're not solely focussed on competing head-to-head with the commodity guys," Engates says.

"Our value has always been the services that we offered above the hardware stack... 'Fanatical support' was something in the early days of Rackspace that we recognised was valuable to customers because they weren't getting it elsewhere.

"They could go get a server or a bit of storage or they could get whatever they wanted at almost any hosting company... but none of those companies were really taking those servers and doing the management and the operations and the providing the expertise that the customers needed to be successful.

"We saw that as an opportunity to really differentiate and step into the market of managed services. And so we've been doing managed services for many, many years."

The company's CEO, Taylor Rhodes, announced earlier this year that Rackspace would be "defining a new industry category", which he described as "managed cloud".

"I think what happened with cloud for a number of years is that you had the early adopter crowd — the first wave of adoption of cloud computing — and they didn't really need those managed services, because they were rolling up their sleeves and learning the technology themselves," says Engates. "They were classic early adopters."

"We have found that there is a vibrant market that is growing that people are willing to pay for help with adoption of cloud computing," the CTO adds. "It's especially apparent when you look at DevOps as a philosophy," he adds.

"DevOps is something that is a foreign language almost to most enterprises — they've heard of it, the know kind of what it is, they know that the startups they're competing with are using DevOps to build software really rapidly and deploy every day and do things in a much more agile way...

"Many companies are struggling with 'What do we do? How do we start? Where do we get the expertise? How do we train our people? What technologies should we be using? Which ones are mature?'

"And I think for us that is the opportunity that Rackspace was really born for — to step in and make those technologies easy to adopt and be the safety net when they do want to adopt a MongoDB platform or a Hadoop platform or even private cloud like OpenStack."

"I think Rackspace has been doing that for a lot of years and so we recognised the opportunity to shift our focus from the commodity components to more of the high value services that go along with them," Engates adds.

The results of the shift have been positive, the CTO says. Rackspace has "had a couple quarters of solid results", and Engates says the concept of 'managed cloud' has picked up momentum in the broader market.

"This is not simply a cloudwashing of our previous Magic Quadrant for Managed Hosting, the term Cloud-Enabled encapsulates how we view the market as evolving at this point in time," Gartner research director Douglas Toombs wrote in a blog entry.

"In a nutshell, Gartner expects that Cloud-Enabled Managed Hosting will evolve managed services over the next several years … much like Infrastructure-as-a-Service has done to infrastructure provisioning and management over the past several years."

One of the propositions of cloud computing has been that for many organisations, managing physical infrastructure is a distraction from their core business activities. In a similar fashion Rackspace has argued that managing all of the complexities of cloud can sometimes be a distraction from focusing on what differentiates a business from its competitors.

"People need infrastructure, and that's going to be a part of our offering forever I think, but it's whether or not you value the services that go along with it," Engates says.

"More and more [organisations] are starting to recognise that there's real value in those services and then that leads us to a real opportunity in those kinds of customer engagements."

"We didn't launch managed cloud without any history," the CTO says. "We knew that customers were buying it because the truth of the matter is we had a product offering that was called managed cloud for a long time. It was kind of just a support offering that went along with [cloud services] for customers that wanted a little bit more help.

"So we dipped our toe into that market a while back and I think that what we've done this year is really just put that as the headline at the top of the company and said look: We are a managed cloud company.

"We are not going to go to market with products that are commodity and unmanaged and unsupported. Support is embedded in everything that we do and managed services are the things that we are going to lead with in terms of our difference in the market."

"Customers pay Rackspace more money than they do our competitors because we support them," Engates says.

"We actually will pick up the phone. We'll help you migrate your mail, we'll help you support your users that need help with their mobile devices that aren't connecting for some reason.

"Microsoft and Google are not particularly great at picking up the phone and talking to customers and I think we've built a business [based] on that. We built a culture that is really good at training and motivating and hiring the kinds of people that are good at that kind of thing. It's in our DNA. And so I think we're going to look for opportunities where we can apply managed services, support, and expertise in a variety of platforms. "

The end of the 'race to zero'

"I think that Microsoft, Amazon, Google — they're going to have to start to focus on things beyond the price of things and more on the value and differentiating [from] one another somehow, because otherwise customers won't know the difference between [them]," Engates says.

The cloud services price war "leads people to believe that it truly is a commodity," he adds.

"The definition of a commodity is when you can't distinguish other than on price. And so I worry that that has set the stage for people to believe that that is what the cloud is about — just price, price, price, price, price.

"They're bound to start going in different directions. I think Amazon set that mentality of always lowering prices, but you can't do it forever. We've already hit zero with the cost of storage for a lot of the [cloud providers]... At some point we've got to start — and I think Rackspace has figured that out — we've got to figure how to go in a different direction than price. And those guys — Google and Microsoft and Amazon — will go in different directions beyond [the] price war."

Beyond price what will matter "is innovation and tools and technology and customer outcomes and guarantees around uptime and performance and availability and service, SLAs — those kinds of things".

"I think [enterprises] are kind of waking up to that," the CTO adds. "They've been enamoured with price cuts and cheap and 'can we lower our costs', but they've almost forgotten all of the lessons they've learned over the last 20 years: You've got to have good relationships with your vendor, you can have multiple vendors in the mix, you've got to have contracts that guarantee certain outcomes and performance of your vendors, you've got to manage them well.

"And I think cloud has clouded all of that — it's put that out of sight, out of mind for a while, but I think that comes back into the picture as bigger enterprises start to adopt more cloud and need some certainty around the performance of their vendors."

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